Banks Rock for Third Straight Session: Financial Winners

NEW YORK ( TheStreet) -- Bank stocks were strong again on Thursday, following several economic reports underscoring continued job-market improvement in the U.S.

The KBW Bank Index ( I:BKX) rose 0.7% to close at 63.4 for its third-straight gain, with all but two of the index components rising for the session.

Big banks showing gains of over 1.5% included U.S. Bancorp ( USB) of Minneapolis, which closed at $36.70; Comerica ( CMA) of Dallas, closing at $41.69; and Zions Bancorporation ( ZION) of Salt Lake City, with shares closing at $28.93.. Large players showing gains of over 1% included First Niagara Financial Group ( FNFG) of Buffalo, N.Y., closing at $10.14; KeyCorp ( KEY) of Cleveland, at $11.84; and PNC Financial Services Group ( PNC) of Pittsburgh, at $73.35.

The banks led the overall market, with the broad indices ending with slight gains after Automatic Data Processing said the U.S. economy added 176,000 private sector jobs during August, on a seasonally adjusted basis, following a higher growth number of 198,000 in July. The July number was revised slightly downward from 200,000. The payroll processor's job-growth estimates are derived from its payroll numbers.

While the ADP number for August missed the consensus estimate of 200,000 among economists polled by Thomson Reuters, national unemployment claims came in lower than expected.

The Labor Department said first-time jobless claims for the week ended Aug. 31 declined to 323,000 from an upwardly revised 332,000 the previous week. Economists had expected new unemployment claims last week to come in at 330,000. The four-week average for unemployment claims was 328,500, declining from the previous week's average of 331,500, to its lowest level since October 2007.

The Institute for Supply Management said its non-manufacturing employment index was up 3.8% to 57%, indicating employment growth for the 13th consecutive month as service-sector employment continued growing at a faster rate than manufacturing employment. An index reading above 50% indicates expansion. The ISM non-manufacturing index rose to 58.6% in August from 56% in July. Economists had expected the non-manufacturing index to decline to 55%.

Next up is the official set of employment numbers for August, which the Labor Department will release on Friday. The national unemployment rate for July was 7.4%, declining from 7.6% the previous month. Economists expect no change in unemployment rate for August.

There has been quite a bit of coverage of Federal Reserve stimulus policy, which will ramp up again next week, in anticipation of the next meeting of the Federal Open Market Committee on Sept. 17-18, followed by the FOMC's policy statement. Many economists expect the central bank to make small reductions in its purchases of long-term mortgage-backed securities and U.S. Treasury bonds. These purchases have totaled $85 billion per month since last September, as the Fed has attempted to hold long-term rates down. The market in anticipation of a curtailment of bond purchases has sent the yield on 10-year Treasury bonds by 129 basis points since the end of April.

But the Fed's main policy tool is the short-term federal funds rate, which has been kept in a range of zero to 0.25% since late 2008. The FOMC has said repeatedly said it will likely be appropriate to maintain its "extraordinarily accommodative" policy for short-term rates at least until the nation unemployment rate drops below 6.5%, making Friday's unemployment rate a critical number for investors.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.